Washington (CNN) - Officials at the Internal Revenue Service knew in June 2011 that their agents were targeting conservative groups for additional scrutiny on tax documents, an inspector general report to be released this week is expected to say, according to a congressional source familiar with the inquiry.
Further, an early timeline of events compiled by the inspector general and obtained by CNN indicates the agency's practice of singling out conservative groups began as early as March 2010, and in July of that year, unidentified managers within the agency "requested its specialists to be on the lookout for tea party applications." In August, specialists were warned to be on the lookout for "various local organizations in the tea party movement" applying for tax-exempt status. The specific criteria would change several times over the next two years, according to a portion of the report.
Following tea party complaints, IRS admits 'mistakes'
More: Palin blasts IRS 'corruption'
An IRS official on Friday admitted the agency made "mistakes" in the last few years with tax-exempt status applications and specifically those submitted by groups with the words "tea party" or "patriot" in their names. Multiple conservative groups have said their applications were delayed and returned with lengthy requests for supporting materials, sometimes including website printouts and lists of guest speakers.
The Treasury Department inspector general for tax administration launched an audit of the agency's practices, and spokesman David Barnes said the report is being finalized and is expected to be released this week.
Barnes said the review was requested by Rep. Darrell Issa, chairman of the House Committee on Oversight and Government Reform, and focused on programs and operations. An audit is separate from an investigation, which would assess wrongdoing such as violation of law or policies.
President Barack Obama's spokesman Jay Carney said Saturday that Obama believes the government should be staffed with "the very best public servants with the highest levels of integrity" and that "based on recent media reports, (the president) is concerned that the conduct of a small number of Internal Revenue Service employees may have fallen short of that standard."
"If the Inspector General finds that there were any rules broken or that conduct of government officials did not meet the standards required of them, the president expects that swift and appropriate steps will be taken to address any misconduct," he said in a statement.
Lois Lerner, director of tax-exempt organizations for the IRS, publicly admitted on Friday for the first time that agents used the keywords "tea party" and "patriot" to flag applications for further review, but she stressed that was done as a "shortcut" for picking the applications to review, not out of "political bias."
The IRS commissioner at the time said at a March 2012 congressional hearing that his agency did not target conservative groups for political reasons.
"I can give you assurances. We pride ourselves in being a nonpolitical, nonpartisan organization," Commissioner Douglas Shulman said. "There is absolutely no targeting. This is the kind of back and forth that happens when people apply for 501(c)(4) status."
The congressional source familiar with the inquiry understood that Lerner knew of the targeting in 2011 but sent letters to Congress earlier this year without disclosing the extent of her knowledge.
Lerner said on the Friday conference call that she "did not feel comfortable answering" as to when senior IRS officials became aware of the situation. She also said she could not give a time frame for when the IRS began looking into complaints.
She said the IRS has implemented changes to prevent similar mistakes in the future but could not say that any IRS employees had been disciplined.
The IRS said Sunday that the timeline in the inspector general's report was accurate, but that it "does not contradict" Shulman's March testimony.
"While Exempt Organizations officials knew of the situation earlier, the timeline reflects that IRS senior leadership did not have this level of detail," the statement from the IRS read. "The timeline supports what the IRS acknowledged on Friday that mistakes were made. There were not partisan reasons behind this."
The applications in question were processed by an office in Cincinnati that handles most applications for 501(c)(4) status and had seen the number of applications rise sharply between 2010 and 2012, Lerner said.
Some 75 conservative groups, flagged by agents because of their names, were among 300 groups singled out for this additional scrutiny, she said. The agency received more than 3,400 applications for 501(c)(4) status in 2012.
"They did pick the cases by names and that's absolutely inappropriate and not the way we should do things," she said, though stressing it was done as a "shortcut," not out of political bias.
Officials with some groups subjected to the scrutiny said they would have had to supply thousands of documents, stacked inches thick, to comply with the requests. Some chose not to, saying the agency was attempting to bury them in paperwork.
Tax-exempt groups are allowed to advocate for causes so long as their primary activities are dedicated to "social welfare," according to IRS rules. When an advocacy case is filed for further review, the IRS tries to determine if the group plans on sticking by that calculus.
IRS scrutiny of conservative applications appears to have begun well before the groups had any idea they were in the spotlight.
The timeline prepared by the inspector general and obtained by CNN redacts events before March 2010 as well as several between then and July 15, 2012, when the timeline concludes. But between the omitted content is a series of events showing what was happening inside the agency.
Initially, unidentified managers from the Determinations Unit of the IRS searched for "applications involving political sounding names (such as ) 'We the People' or 'Take Back the Country.'" In mid-March 2010, the agency identified 10 tea party-related cases, and by April 5, there was a list of 18, though "three had already been approved as tax exempt," the report read.
In late April and May, specialists from the Technical Unit were involved, and on June 7, the "Determinations Unit began training its specialists on emerging issues to watch for, including an emerging issue referred to as Tea Party Cases."
That summer, an e-mail and a "be on the lookout" note were sent to employees that included a "coordinator contact for the cases."
Over the next year, some responsibilities shifted and new staff joined the effort.
The timeline suggests the first hesitation within the agency regarding the process came in June 2011, when "the acting director, Rulings and Agreements, commented that the criteria being used to identify tea party cases may have resulted in over-inclusion." But part of that entry, as well as the preceding one, are redacted from the timeline.
Later that month the director of exempt organizations was briefed on the efforts, and the criteria for evaluating applications were adjusted, one of several times the criteria would be tweaked. A guide sheet for handling applications was developed, and in September, "A Technical Unit specialist reviewed the list (of applications) to determine if any cases could be closed on merit or closed with an adverse determination letter," meaning the application would be accepted or denied.
The timeline continues to show incremental changes to the criteria, additional reviews and the involvement of counsel after the entry labeled "February-March 2012."
"Numerous news articles began to be published with complaints from tea party organizations about the IRS's unfair treatment," it read. "Congress also began to show interest in the IRS's treatment of Tea Party organizations."
Congress asks questions
By March of 2012, Congress was asking questions of the IRS. That month, Shulman denied the agency targeted groups for political reasons at the congressional hearing.
There was also an exchange of letters involving Capitol Hill, Shulman and Lerner.
"News reports ... indicate that the IRS effort lacks balance, with conservative organizations being the target of the IRS's scrutiny," Issa wrote to Lerner in a March 27, 2012, letter obtained by CNN. He noted a Capitol Hill news outlet had "contacted several liberal groups ... (and) none had received the recently-sent questionnaire."
Lerner responded that the IRS sets aside "applications that require further development by an agent in order to determine whether the application meets the requirements for tax-exempt status.
"... The revenue agent uses sound reasoning based on tax law training and his or her experience to review the application and identify the additional information needed to make a proper determination of the organization's exempt status," she wrote deeper in the eight-page response.
She did not disclose in that letter that the IRS targeted conservative groups, even if for nonpolitical reasons.
Separately, a dozen U.S. senators, led by Sen. Orrin Hatch, R-Utah, and Sen. Rob Portman, R-Ohio, sent Shulman a letter asking for more information about this situation.
Shulman's six-year term ended in November and the agency is currently led by interim commissioner Steven Miller.
CNN's Athena Jones and Ashley Killough contributed to this report.
The only two parties in America that want to overthrow the government are the Communist Party and the Tea Party. That should tell you something.
... 'a small number of (IRS) employees.' How many broke into Watergate? Clearly political, however rhetorically framed and rationalized. Familiar questions, how high did it go; who knew what and when?
Amazing, to me how ANYONE could hate as easily as the chat trolls on this page. The comment section is meant to offer INTELLIGENT discussion. You have made if a room full of bitter, hateful, vindictive, old trolls. Congrats.
I'm confused. You have the agency that is responsible for collecting the federal taxes investigating the ones who are vocally in favor of no one paying any taxes. Where is the corruption?
No story here.
The IRS did a great job in handling these tax cheats.
Get rid of tax exempt status. Period. No churches, no "non-profits" paying their heads $500,000 a year. Taxes for everyone.
Sad that so many of you think that Obama using the IRS as a hammer against his political opponents is a good thing. Regardless of weather you are for or against Tea Party the IRS and the president is supposed to represent everyone equally. What will you folks do when a Republican comes in and uses the IRS to check out Life Line, welfare fraud and Acorn? WIll you think its ok then? I also love how many of you were calling them Tax cheats. Really? None of the organizations have faced any penalties and therefore according to the IRS didnt cheat. But I guess you are the type of person that supports Acord that helps fund underage prostitution.
Thats because no one can stand the Tea Party. Everyone is out to get them.
"There is absolutely no targeting. This is the kind of back and forth that happens when people apply for 501(c)(4) status."
This is how you know they are lieing, when no OTHER group was targeted. How many left wing progressive groups file for the same status..yet were un-investigated.
Liberals...your watergate is coming faster than you think....after that you can forget the white house for the next 100 years
Good, these Tea Party types haven't seen a military conflict they don't want us to get involved in. Who do they think pays for this?
Now, we have to get all the "Off-Shore" accounts taxed. Let's start with Romney.
If anyone thinks that the IRS targeting a particular group is something new obviously they have not sufficiently studied American history ....
I think many of the people commenting are missing the point. The IRS should not have the power to indiscriminately target groups they don't agree with. If they can do this with politically aligned groups, what's to stop them from doing it with religiously/non-religiously aligned groups. Then what? Racially? Educationally? Where do you want to draw the line? Are you implying that one set of standards should be adhered to and supported when you don't like the groups in question? What if it's YOUR group? And if they can be allowed this free license, then what about when it trickles down to scrutinizing individuals they don't particularly agree with. Whether you like a group's ideology or not, the government is not exempt from protecting that group's rights unless and until there is probable cause to do otherwise.
Wait. Why are they targeting the word "patriot"? When did that become derogatory?
This is sad our president has shown him self to be such a liar......and my former fellow dems call names and spread hate because the man is a failure....this will destroy dems in 2014/16
The IRS is a UNION shop that hates anyone trying to reduce their salaries
I'm sorry but I'm having a really hard time finding any problem here – for years the "Tea Party" has whinged and whined about the big bad Tax Man and even puts out the word "tea" as an acronym for "Taxed Enough Already", now they want tax exempt status and are shocked when the IRS investigates them? Manufactured outrage, where would the right be without it? Working to improve the nation's lot and passing a budget one supposes....
Move on, nothing to see here.
I'm a republican and I hate the idiots in the tea party. I consider myself just right of center.....most comments here on cnn ( go figure) are from people who hate the tea party or the republicans. You people completely miss the point of the problem (let alone the freedoms being trampled on – but I digress)....
The problem is that out government has decided to eliminate or suppress a group of people with a different political view. When the government swings right again – and it will – you will be the same people screaming when these governent organizations doing the same to left leaning groups. Don't deny it. You can't. Don't hide under the guise of "these groups are just hate groups" or the like..... either back our freedoms all the time, or get the hell out of the country and move somewhere that suppports hypocracy as a law.
Amazing how some people ignore the abuse of power because of their political affiliation. If the criminal abuse of power can happen to one group, they can do it to another.
Think for a moment. Under the AHCA, the IRS will have more info and power to target anyone who disagrees with the government. While some might find this amusing, imagine what they would feel in the future should a Republican Administration was in charge.
This is criminal, no matter what political party you are affiliated with.
Steve – Did you read the article, I mean really read it? 300 apps were flagged for scrutiny, only 75 were from "conservative groups"... Hmm, wonder who made up the other 275? Fair question, yes, before pushing the automatic outrage button?
Steve my bad, 225 apps NOT from "conservative groups" were flagged. Who were they and why aren't they crying like poopy butt hurt children?
Wow, reading these posts shows how intellectually dishonest many of the people who are on the left side of the spectrum are. I have seen many people say the Tea Party advocates not paying taxes and that the IRS was correct in targeting them. That right there show each of these peoples stupidity. While I am not a Tea Party member and really don't know much about them, even I know that they are against burdensome taxation, especially when the government wastes so much of our money already.Yet the people on here claim something that is blatantly false in order to justify their own political bias. So they don't care that the same thing happened under Nixon then? The are fine with the IRS being used as a political tool against their beliefs? Pathetic. All of you agreeing with this are just that pathetic. I will condemn anyone who does this, no matter which worthless party they are a part of.
When you have groups coming out of the woodwork who are openly hostile toward the tax code and paying taxes, in general, and they are attempting to get tax-exempt status, then I think it's incumbent upon all of us to treat such applications with suspicion and extra scrutiny. By requesting tax-exempt status, they are asking all of us to foot the bill for them. I appreciate the IRS working on behalf of us, the people, to ensure that fellow citizens aren't trying to cheat their way out of paying their fair share in taxes.
Corruption, abuse of power, cover-ups are the new norm? If what is happening in DC today was going on 10 years ago, this administration would have been impeached months ago. A sad state of affairs.
So they scrutinized applications for tax exempt because they had political monikers. Geez, Louise, kind of a no-brainer.
Wish they would do the same with the religious named ones. Those also can not keep their noses out of politics.
Plenty of questionable "non-profit" around. I have to pay more property/school tax because of the many tax exempts.
Wish they scrutinized all of them or make some changes to the laws. So many are just money launderers.